EMC 2006 Annual Report Download - page 57

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
adjusted to exclude the effects of accumulated actuarial gains/losses and prior service credits that would be recognized in future periods. Upon adoption of
FAS No. 158, we adjusted the respective asset and liability balances of the Plans to reflect only their net funded status as of December 31, 2006. Accordingly,
all accumulated actuarial gains/losses and prior service credits, net of tax, were reclassified to accumulated other comprehensive loss. The following
represents the incremental effect of applying FAS No. 158 on individual line items in our consolidated balance sheet as of December 31, 2006 (table in
thousands):
Balance Sheet Line Item
Balance of the
Plans Prior to
Application of
FAS No. 158
Decrease from
Application of
FAS No. 158
Balance of the
Plans After
Application of
FAS No. 158
Other assets $ 148,347 $ (100,971) $ 47,376
Accrued expenses 27,087 (5,787) 21,300
Deferred income tax liability 51,976 (36,909) 15,067
Accumulated other comprehensive loss — (58,275) (58,275)
Concentrations of Risks
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, short- and long-term
investments, accounts and notes receivable and foreign currency exchange contracts. Deposits held with banks may exceed the amount of insurance provided
on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and therefore
bear minimal credit risk. We place our cash and cash equivalents and short- and long-term investments primarily in investment grade instruments and limit the
amount of investment with any one issuer. We have entered into various agreements to loan fixed income securities generally on an overnight basis. Under
these securities lending agreements, the value of the collateral is equal to 102% of the fair market value of the loaned securities. The collateral is generally
cash, U.S. government-backed securities or letters of credit and is held in our possession. At December 31, 2006, there were no outstanding securities lending
transactions. We provide credit to customers in the normal course of business. Credit is extended to new customers based upon industry reputation or a check
of credit references. Credit is extended to existing customers based on prior payment history and demonstrated financial stability. The credit risk associated
with accounts and notes receivables is generally limited due to the large number of customers and their broad dispersion over many different industries and
geographic areas. Our sales are generally dispersed to a large number of customers, minimizing the reliance on any particular customer or group of customers.
Dell, Inc., one of our channel partners, accounted for 14.5% and 11.6% of our revenues in 2006 and 2005, respectively, and accounted for 10.2% of our
accounts receivable at December 31, 2006. The counterparties to our foreign currency exchange contracts consist of a number of major financial institutions.
In addition to limiting the amount of the contracts we enter into with any one party, we monitor the credit quality of the counterparties.
We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers. If any of our suppliers were
to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our
products, we could lose customer orders. We attempt to minimize this risk by finding alternative suppliers or maintaining adequate inventory levels to meet
our forecasted needs.
Accounting for Stock-Based Compensation
On January 1, 2006, we adopted FAS No. 123R, "Share-Based Payment" ("FAS No. 123R"). The standard requires recognizing compensation costs for
all share-based payment awards made to employees and directors based upon the awards' estimated grant date fair value. The standard covers employee stock
options, restricted stock, restricted stock units and employee stock purchases related to our employee stock purchase plan. Additionally, we applied the
provisions of the SEC's Staff Accounting Bulletin No. 107 on Share-Based Payment to our adoption of FAS No. 123R. Previously, we elected to account for
these share-based payment awards under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and
elected to only disclose the impact of expensing the fair value of stock options in the notes to the financial statements.
We adopted FAS No. 123R using the modified prospective transition method which requires applying the standard as of January 1, 2006 ("the adoption
date"). The modified prospective transition method does not result in the restatement of results from prior periods and accordingly, the results of operations
for 2006 and future periods will not be comparable to our historical results of operations.
Under the modified prospective transition method, FAS No. 123R applies to new equity awards and to equity awards modified, repurchased or canceled
after the adoption date. Additionally, compensation cost for the portion of awards granted prior
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